FEATURE

Corporate Retail : Government Claims – and the Reality

In the face of immense opposition to its decision to permit 51% FDI in multi-brand retail, the Government has had to out its plans on hold. However, this is only a temporary setback, and the UPA Government is committed to introduce this policy at all costs. In order to do so, it has been peddling many myths about FDI in retail. It has brought out full-page ads in papers extolling FDI in retail. Unwittingly, these ads acknowledge people’s concerns of job losses, of kirana store owners being put out of business, of multinationals gaining full access to and control of India’s retail sector, of farmers being exploited - but attempt to dismiss these concerns as ‘myths.’ The UPA Government, as well as corporates and neoliberal ideologues, are telling us that if companies like Walmart (the US MNC, one of the world’s biggest retail chains), Carrefour, Tesco etc are given more space in India’s retail sector, they will create ten million new jobs; ensure low prices for consumers; and a better deal for farmers. Shankar Gopalakrishnan examines these claims, in the light of the international experience and the facts on the ground.

In the flood of official (and media) propaganda in the wake of the government’s (temporarily stalled) move to permit FDI in retail, the actual reality of what this will mean is being lost. For this it’s necessary to look at this issue logically, rather on the basis of hype. Commerce Minister Anand Sharma’s letter to political parties offers a good place to start. His claim can be summarised as follows:
•         Corporate retail fuelled by FDI will result in investment in cold chains and therefore in lower prices by “eliminating middlemen.”
•         Corporate retail will not threaten small retailers, who find “innovative ways to coexist”, and will generate employment
•         Corporate retail will benefit farmers and producers by ensuring a “remunerative price.”
•         Corporate retailers will remain restricted to some areas and some sectors.
•         There are already corporate retailers in India and there is therefore no problem in permitting FDI.

Not one of these claims is justified by the available data.
Lower Prices and Investment in Cold Chains?
•         In the sector that requires cold chain infrastructure most - fruits and vegetables - data from developing countries often shows that prices in supermarkets are generally higher than from existing retailers. Certainly, there is no data that shows consistently lower prices from corporate retailers. Thus:
•         In Thailand, they are estimated to be 10% higher.1
•         In Argentina, data showed consistently higher prices for fruits and vegetables in supermarkets (the difference being about 14% through the 1990’s), though this difference was falling.2
•         In 2000, in Mexican supermarkets, prices of lemons, tomatoes and oranges were significantly higher than in traditional markets, while in all other fruits and vegetables they were identical or slightly higher.3
•         In Vietnam, in 2002, it was found that prices in supermarkets across all categories were around 10% higher.4
•         The concentration of power in the hands of a few companies by no means leads to lower prices. In the US, supermarkets raised tomato prices by 46% between 1994 and 2004 while real prices paid to producers fell by 25%.5
•         In the Indian experience, the entry of corporate chains into wheat and grain procurement has coincided with increased speculation and increased prices.
•         Regarding investment in cold chains and reduction in wastage, it should be remembered that the international food industry – controlled by the same chains currently advertised as sources for FDI – wastes almost half of the food it procures.6

Red Light for Walmart in New York– Why Red Carpet in India?!
When the debate over FDI in retail was at its peak, the US Ambassador in India, speaking at a public gathering, chose to contribute to the debate. The fears expressed by Indians were misplaced, he said – FDI in retail was just what the Indian economy needed.
Well, he should perhaps have begun by convincing fellow Americans, before attempting to convince us here in India! After all, Walmart has been struggling in vain since 2005 to open an outlet in one of the USA’s most prominent cities - New York City!
Local people and unions in NYC are unwilling to allow Walmart into their city because it is notorious for killing jobs; putting mom-and-pop (family-run) stores out of business; destroying communities by driving down wages and driving up real estate prices; disallowing unions; and extremely exploitative working conditions.

Yet, the UPA Government is keen to invite Walmart, which is unwelcome in its own home country, to put small stores out of business, kill jobs and employ people in sweatshop conditions in India!

No Effect on Small Retailers or Employment in Retail?

The Minister and the government here is playing a simple verbal trick. The fact that some retailers “continue to coexist” does not in any way mean that most small retailers will not be pushed out of business.
•         Indeed, the data is exactly opposite to the claim that there is no evidence of harm to small retailers. Here are citations and figures:
•         Brazil: in fruits and vegetables, share of street markets declined by 27.8% between 1987 and 1996; in dairy sales, share of dairy stores fell by 27.8% and open air markets by 53.3%.7
•         Argentina: Number of small stores dropped by 64,198 between 1984 and 1993 – 30% of the shops in the country.8 Employment in retail sector dropped by 26% in the same period.
•         Chile: between 1991 and 1995, ‘traditional’ food and beverage retailers declined by approximately 20% in all segments.9
•         Indonesia: between 2002 and 2003 – just one year – number of ‘traditional’ grocery stores fell by 154,148 stores, or 9%.10
•         Latin America: supermarkets now control 60% of food retail.11
•         East Asia other than China: 63% of processed / packaged foods controlled by supermarkets, estimated 30% of fresh foods.12
What about the oft-cited example of China? This example is irrelevant because Chinese food retail entirely different13:
•         From 1959 till the late 1980s, private retail trade was essentially banned in China’s cities, and all retail was taken over by public state owned enterprises
•         In 1992 (with the rise of supermarkets just beginning), state-owned large networks accounted for 41.3%, cooperatives/collectives 27.9%, and private enterprises (i.e. small retailers mostly) 20% of market – hence completely incomparable to Indian situation.

In all situations big retailers begin with the rich segment of the population but do not remain confined to them – they always attempt to expand into smaller towns, reaching out to poorer segments. In Latin America, Asia and Africa in general, “there has been a trend from supermarkets occupying only a small niche in capital cities serving only the rich and middle class to spread well beyond the middle class in order to penetrate deeply into the food markets of the poor.”14
Benefits to Farmers?

Do We Want A ‘Walmarting’ of India? Walmart is run by the Walton family - which is the richest family in the world. Is it fair to force small Indian family stores and street vendors to compete with the richest in the world? In India, there are around 1.2 crore shops, employing 4 crore people. Most of these are small, self-employed establishments. The retail sector is also the refuge of those unable to find employment elsewhere, allowing them a chance to eke out a living by running small shops, pushing handcarts or selling vegetables on the street. Even if we accept the Govt’s claim that FDI in retail will create a crore jobs, should we not ask how many jobs and means of survival it will jeopardise and destroy in India? Moreover, the quality of jobs in the corporate and MNC retail chains are notorious the world over for being the worst paid and exploitative, with the least workplace democracy.
Checks and Balances? The Government promises to provide certain checks and safeguards, like restricting foreign retail chains to 51 cities in India and requiring them to source 30% products from the Indian small and medium enterprises (SMEs). But the fact remains that even if the MNC retail chains are initially limited to the bigger Indian cities, it is not difficult to see that they will skim off the cream of the Indian retail market. Also, a token 30% reservation would not save the Indian SMEs from the adverse impact of unequal global competition. We have all witnessed how, with the entry of Pepsi and Coke in the soft drink sector, all Indian companies were swallowed up or pushed out.

Do We Want A ‘Walmarting’ of India?
Walmart is run by the Walton family - which is the richest family in the world. Is it fair to force small Indian family stores and street vendors to compete with the richest in the world?
In India, there are around 1.2 crore shops, employing 4 crore people. Most of these are small, self-employed establishments. The retail sector is also the refuge of those unable to find employment elsewhere, allowing them a chance to eke out a living by running small shops, pushing handcarts or selling vegetables on the street. Even if we accept the Govt’s claim that FDI in retail will create a crore jobs, should we not ask how many jobs and means of survival it will jeopardise and destroy in India? Moreover, the quality of jobs in the corporate and MNC retail chains are notorious the world over for being the worst paid and exploitative, with the least workplace democracy.

Checks and Balances?
The Government promises to provide certain checks and safeguards, like restricting foreign retail chains to 51 cities in India and requiring them to source 30% products from the Indian small and medium enterprises (SMEs). But the fact remains that even if the MNC retail chains are initially limited to the bigger Indian cities, it is not difficult to see that they will skim off the cream of the Indian retail market.

Also, a token 30% reservation would not save the Indian SMEs from the adverse impact of unequal global competition. We have all witnessed how, with the entry of Pepsi and Coke in the soft drink sector, all Indian companies were swallowed up or pushed out.

Most purchase for corporate retailers occurs through contract farming. This actually has negative impacts on most farmers.
•         All studies of contract farming and corporate food retail state that small and marginal farmers are unable to access the supply chain. The following citations – Vietnam15, Chile16, and two for across the world17,18, as well as a 2005 FAO study19 - stand testimony to this fact. More than 90% of India’s rural population has less than 2 hectares of land and 79% are either landless or own less than 1 hectare. Practically all of these people will be excluded from corporate supply chain; most of them are net purchasers of food and will be affected by increased volatility of prices.
•         Those left out of sourcing may find themselves competing for a much smaller market and essentially being driven out of existence. Thus, in Argentina, the number of dairy farms fell from 40,000 in 1983 – around the time when corporate transformation of the supply chain began - to 15,000 in 2001.20
•         There is no reason that purchases by a small number of companies is going to lead to higher prices for producers. An Oxfam study21 shows that real export prices for South African apples fell by 33% from 1994 – 2004, and Florida tomato growers found their real prices falling by 25% over same period – while consumer prices in the US rose by 46% at the same time. Data currently says that four or five companies control 40% of the international trade in several types of produce, including grains, edible oils, coffee, cocoa and bananas.
•         The same study by Oxfam shows that conditions for agricultural workers in supermarket suppliers is very bad, because of the intense pressure placed on farmers to reduce prices, guarantee ‘quality standards’, handle last minute changes in contracts and absorb discounts, promotions, etc. passed on to them.
•         Abuses of power by corporate retailers include:
           • delayed payments (example from Argentina here22)
           • arbitrary quality standards (the Oxfam 2004 study cited above has very good examples including, for instance, sudden demands that apples should be exactly 65 mm rather than 63 mm),
           • passing on of costs for discounts and promotions to producers (Vietnam23, for instance),
           • and simple default on contracts, as has happened in India (for a summary reference, see Jayati Ghosh and CP Chandrasekhar here24)
           • Global sourcing of fruits and vegetables puts intense pressure on producers to reduce prices to compete and to satisfy the requirements of the corporate retailers (FAO 2005 study)
Corporate Retailers Already Exist, So FDI Will Not Cause Additional Damage
This is simply an irrelevant argument. The small presence of corporate retailers in India’s markets today is a reflection of the fact that in themselves, corporate retailers offer nothing in the sense of retailers that allows them to out-compete the existing system. This is why the entry of FDI has been shown to be the single determining factor that permits large-scale expansion of corporate retail in developing countries.

CPI(ML) Protests Against FDI in Retail
On 29-30 November, the party held countrywide protests, and extended active support to the all-India Strike called by traders’ organisations.
On 30 November in the national capital, the effigy of the Prime Minister was burnt at Parliament Street. On 1 November, the party and AICCTU activists participated in the bandh by distributing leaflets in the marketplaces, holding mike meeting and raising slogans against FDI in retail in Narela, Wazirpur, Govindpuri, Mayur Vihar, Shahdara and Mandawali.
On 30 November, a protest march was held at Ara, in which leaflets were distributed exposing the pitfalls of FDI in retail. On 1 Nov, CPI(ML) and AISA helped to implement the bandh throughout Bhojpur, marching with banners on the streets. Protestors stalled the 512 Down Buxar-Patna passenger at Ara railway station for an hour, till they were arrested and held at GRP thana, where they continued to address the crowds at the railway station.
AICCTU held a protest march and meeting in Gaya on 1 November in support of the bandh. At Patna, the party held a protest march, ensuring closure of shops, and blockading Dak Bangla crossing to hold a protest meeting there.
On 29 November in Tamilnadu, the party held protests all over the state. Notable were protests at Coimbatore; Chennai; Pudukottai; Tirunelveli as well as Kanyakumari; Villupuram and Salem. In Tiruvallore, the police did not let the demonstration take place. A massive protest demonstration was held on 1 December 2011 at Puducherry town.

In Bhilai, Chhattisgarh, CPI(ML) and AICCTU held an effigy burning protest and public meeting at Ghadi Chowk, Supela on 30 November.

The large quantities of money that FDI provides, permit retailers to displace existing suppliers and establish monopolies or oligopolies when purchasing produce; to absorb losses and hence fix lower prices until the competition is wiped out, whereupon prices will be raised (i.e. predatory pricing); and to pressurise governments into bending regulations and subsidising their activities (the latter is already visible among existing corporate retailers).
The simple reality is that, if corporate retailers were simply going to grow alongside the existing system without displacing anyone and purely because of their better results, they would have done so already to a great extent. Why have they failed?
Ignored Issues
Most of the debate ignores the structural requirements of corporate retail and what this will mean. Inherently, in order to make profits, corporate retailers need massive economies of scale in order to offset their very high overhead costs (in contrast to the low overhead, decentralised existing system). Some of the resulting impacts include:
•         Privileging good looks and long durability over taste and nutritional value, so as to permit price hunting and delayed sale of produce: The result is that, as is widely known, fruits and vegetables in supermarkets tend to have less taste, are lower in nutritional value, and are often picked when unripe. This is one reason for rapid growth of the “organic food” market in the industrial countries.
•         Massive increase in use of energy and water for processing, packaging, and transport: The international food industry is now recognised as a major contributor to climate change. Better storage is certainly necessary, but the requirements of corporate retailers far outstrip the actual need. They are not interested merely in storing of food but in being able to source from very long distances and in storing as long as necessary (in order to speculate on prices). The result is that the energy spent on production and sale of one kilogram of rice in the US is 80 times the energy spent by a farmer in the Philippines.25 One fifth of all energy spent on transport in the US is spent on transport of food.26 Can India afford this kind of expenditure of energy and water?
•         Sharp rise in use of pesticides, additives, preservatives and other chemical agents to increase the shelf life of food, with attendant health consequences: For much the same reason as above. Contract farming in particular usually involves a sharp rise in total inputs, destroying the fertility of the land and leading to increased pollution and other problems.
The growth of corporate retail not only will not address the key problems plaguing India’s economy today – it will greatly exacerbate many of them. In particular, the crisis in agriculture, environmental destruction, declines in land productivity, urban unemployment, price volatility and unequal access to resources would all be worsened by unchecked growth of corporate retail.
References
1. Shepherd, Andrew W. (2005). “The implications of supermarket development for horticultural farmers and traditional marketing systems in Asia”, Paper presented to FAO Regional Workshop, Kuala Lumpur.
2. Ghezan, Graciela; Mateos, Monica; Viteri, Laura (2002). “Impact of Supermarkets and Fast Food Chains on Horticultural Supply Chains in Argentina”, Development Policy Review. Oxford: Blackwell Publishing, Vol 20:4.
3. Schwentesius, Rita and Gomez, Manuel Angel (2002). “Supermarkets in Mexico: Impacts on Horticulture Systems”, Development Policy Review. Oxford: Blackwell Publishing, Vol 20:4.
4. Hagen, James M. (2002). “Causes and Consequences of Food Retail Innovation in Developing Countries: Supermarkets in Vietnam”, Working Paper. Ithaca, New York: Cornell University, August. Available online at www.cornell.edu.
5. Oxfam (2004). Trading Away Our Rights: Women in Global Supply Chains. Oxford: Oxfam.
6. “The International Food System and the Climate Crisis”, Seedling, GRAIN, October 2009.
7. Farina, Elizabeth M.M.Q (2002). “Consolidation, Multinationalisation and Competition in Brazil: Impacts on Horticulture and Dairy Products Systems”, Development Policy Review. Oxford:Blackwell Publishing, Vol 20:4.
8. Gutman, Graciela (2002). “Impact of the Rapid Rise of the Supermarket System on Dairy Products Systems in Argentina”, Development Policy Review. Oxford: Blackwell Publishing, Vol. 20:4.
9. Faiguenbaum, Sergio; Berdegue, Julio A.; Reardon, Thomas (2002). “The Rapid Rise of Supermarkets in Chile: Effects on Dairy, Vegetable and Beef Chains”, Development Policy Review. Oxford: Blackwell Publishing, Vol 20:4.
10. A.C. Nielsen (2004). “Small Grocers in Asia Surviving Onslaught of Retail Chains”, Press Release. New York: ACNielsen, June 16.
11. Reardon, Thomas and Berdegue, Julio A. (2002). “The Rapid Rise of Supermarkets in Latin America: Challenges and Opportunities for Development”, Development Policy Review. Oxford: Blackwell Publishing, Vol. 20:4.
12. Reardon, Thomas; Timmer, C. Peter; Barrett, Christopher B.; Berdegue, Julio (2003). “The Rise of Supermarkets in Africa, Asia and Latin America”, American Journal of Agricultural Economics. Oxford: Blackwell Publishing, Vol. 85:5.
13. Hu, Dinghuan; Reardon, Thomas; Rozelle, Scott; Timmer, Peter; and Wang, Honglin (2004). “The Emergence of Supermarkets With Chinese Characteristics: Challenges and Opportunities for China’s Agricultural Development”, Development Policy Review. Oxford: Blackwell Publishing, Vol 22:5.
14. Reardon, Thomas; Timmer, C. Peter; Barrett, Christopher B.; Berdegue, Julio (2003). “The Rise of Supermarkets in Africa, Asia and Latin America”, American Journal of Agricultural Economics. Oxford: Blackwell Publishing, Vol. 85:5.
15. Cadilhon, Jean-Joseph; Moustier, Paule; Poole, Nigel D.; Tam, Phan Thi Giac; Feame, Andrew P. (2006) “Traditional vs. Modern Food Systems? Insights from Vegetable Supply Chains to Ho Chi Minh City (Vietnam)”, Development Policy Review. Oxford: Blackwell Publishing, 24:1.
16. Faiguenbaum, Sergio; Berdegue, Julio A.; Reardon, Thomas (2002). “The Rapid Rise of Supermarkets in Chile: Effects on Dairy, Vegetable and Beef Chains”, Development Policy Review. Oxford: Blackwell Publishing, Vol 20:4.
17. Boselie, David; Henson, Spencer; and Weatherspoon, David (2003). “Supermarket Procurement Practices in Developing Countries: Redefining the Roles of the Public and Private Sectors”, American Journal of Agricultural Economics. Oxford: Blackwell Publishing, 85:5.
18. Reardon, Thomas; Timmer, C. Peter; Barrett, Christopher B.; Berdegue, Julio (2003). “The Rise of Supermarkets in Africa, Asia and Latin America”, American Journal of Agricultural Economics. Oxford: Blackwell Publishing, Vol. 85:5.
19. Shepherd, Andrew W. (2005). “The implications of supermarket development for horticultural farmers and traditional marketing systems in Asia”, Paper presented to FAO Regional Workshop, Kuala Lumpur.
20. Gutman, Graciela (2002)
21. Oxfam (2004). Trading Away Our Rights: Women in Global Supply Chains. Oxford: Oxfam.
22. Gutman, Graciela (2002). “Impact of the Rapid Rise of the Supermarket System on Dairy Products Systems in Argentina”, Development Policy Review. Oxford: Blackwell Publishing, Vol. 20:4.
23. Cadilhon, Jean-Joseph; Moustier, Paule; Poole, Nigel D.; Tam, Phan Thi Giac; Feame, Andrew P. (2006) “Traditional vs. Modern Food Systems? Insights from Vegetable Supply Chains to Ho Chi Minh City (Vietnam)”, Development Policy Review. Oxford: Blackwell Publishing, 24:1.
24. Chandrasekhar, C.P., and Ghosh, Jayati (2003). “Is Corporate Farming Really the Solution for Indian Agriculture?”, Business Line. Chennai: Kasturi and Sons, December 16.
25. “The International Food System and the Climate Crisis”, Seedling, GRAIN, October 2009.
26. Ibid.